Central America: crime and violence eating up small business profits

From any tall building in Guatemala City you have a bird's eye view of a common site in cities across Latin America and the Caribbean: lodged in the alleys and walkways between modern highrises, low tin-roof structures shelter the hard world of the informal economy.

Those are usually the structures of small businesses, such as the one belonging to Cristina Lajuj's, currently feeling the pressure of the spiral of crime and violence that is threatening Central America's own prosperity. For more than 11 years, Lajuj has been making a living selling tortillas and other typical dishes. In a space just off a parking lot and smaller than a Washington DC food truck, five women begin mixing corn flour at 6:30 every morning. By 8AM a basket full of warm tortillas and a small plate of cheese slices await the clientele of office workers, delivery men and other street vendors.

For one quetzal (about 13 US cents) you can buy five tortillas. That means that Lajuj has to sell 5,000 of them just to cover the rent for her tiny business. Whatever is left covers wages of her employees and her basic needs and those of her three children. "You can never get ahead," the 41-year-old micro entrepreneur said during a conversation early one morning.

Just blocks away the first international Conference in support of Central America's new Security Strategy is taking place. Its main goal is to come up with a strategy to tackle the growing wave of crime and violence that stifles growth and development in the region.

Asked what she thinks about that, Lajuj says insecurity is not as bad as it was when she was a little girl growing up in the midst of Guatemala's 36-year civil war that ended in 1996. But she does blame lack of security for the rising prices of corn and other staples.

Today she pays 250 quetzals per 100 pounds of corn flour, 70 more quetzals than last month. The price increase has forced Lajuj to gradually decrease the size of her tortillas, which these days fit in the palm of the hand. At some point, Lajuj says she is considering migrating to the United States where she thinks she could do well selling tortillas to so many immigrants already living there.

The economic consequences of security are very much what brought the World Bank here this week. Crime and violence have gotten so bad in most of Central America -- reaching epidemic levels according to World Health Organization criteria -- that the Bank realizes development efforts won't take hold until citizen security improves. Beyond the trauma and suffering of individual victims, crime and violence carry staggering economic costs at the national level –as much as 8 percent of GDP, which is more than what countries typically spend on social programs in this region, according to a recent World Bank report.

This week, Central American governments received more than US$1.5 billion in pledges from the World Bank, the United States and other multilaterals, which no doubt will contribute to build up the region's defenses against the scourge of crime and violence.

But a lot more needs to be done.

From our perspective and that of many others present at the Conference, rich people in these countries have to be willing to step up to the plate and pay more taxes. Today, Central American countries have the lowest tax rates in the hemisphere.

In an opinion column published by the Guatemalan daily El Periódico, World Bank Vice President for Latin America and the Caribbean Region, Pamela Cox, stressed the need for "Central America's leaders and wealthiest citizens … to signal their commitment by making additional domestic fiscal efforts."

Otherwise, the governments' ability to attend to other social needs will continue to suffer, as security demands require more and more public resources. And, as U.S. Secretary of State Hillary Clinton said during her speech at the Conference, "security cannot be funded on the backs of the poor."

Comments

Walking in San Jose Pinula, a small town on the outskirts of Guatemala City last week, I wondered how the tortilla industry works. In econ classes we characterized the tortilla market as perfectly competitive (especially within the context of a street market or mercado), but the reality surpasses all micro models.
I am from here, and live here, and I am listening to the rain right now. I live in San Jose Pinula were two candidates to Mayor of the municipality have been killed. I was looking to the news of your conference on violence on tv, it was really cool to see so many important and pretty smart people visiting Guatemala, some bust for the local hotel industry.
I was surprised that nobody mentioned drug liberalization, at least not in the short screen shots they showed on the evening news. I hope all this money that the international community will bring produces some good results, although I am not very optimistic. I wonder if the World Bank can do a cost-benefit analysis of drug legalization, or least some kind of drugs . . . I think there is evidence that favors legalization. I know is not very politically correct, the whole thing, but after learning about 15, 16, 20 people being killed every day I wonder when the death toll is going to be high enough to consider drug legalization. I think they only way out is time, waiting for the "bad" people to kill each other so that this likely "macho alpha" generation despairs, or we legalize it and change the incentives . . . when it comes to money to fight the war on drugs, I have little hope.
By the way I do agree with the issue on taxes.
And by the way, given the salary of a tortilla maker, one understands why drugs attract people.

By the way, now that you are visiting Guatemala I would suggest that you try to find out how many men and how many women are killed per municipality, or even per department. My point is that we do not have statistics of the simple variations (or at least I have not found them), I don't think this is related to lack of money, one only needs to register the gender of the victim . . . but yet we do not have them . . . this is a challenge for us, may be the nature of male killings is different from the nature of female killings (but "pa saber", like they say in Colombia). If I remember correctly 10% of the victims are women.

I live in these countries for 7 years and I will never be able to understand how much longer these people accept the worseless governments of these bananarepublics. They are corrupt from top to bottom. Guatemalas Pres.elections is kind of familybusiness. El Salvador is too bad even to talk about. Incapable of everything they say and do. They talk more and do nothing.Honduras judged wrongly by the international community. Zelaya was a criminal and imported lots of airplanes full of drugs from Chavez. Please let all the money Worldbank and the countries donate be audited every time. The Casa Presidencial needs a lot of money for all their robery.
Using public transportation means you don´t know if you ever come home. The busowners are a seperate cast. They have their own political party and don´t accept better transportation.
50% of the population is blackmailed. There is a national psychosis.
Sick countries with governments only interested in their own pocket.. It gets worse every day. Failed states. Subsidized by the international community with tax money from others.
Here police and deputees are involved in organized crime.
Guatemala and El Salvador have the worst education and are not willing to improve. Because they are uncapable in whatever they do.
Too many children... total lack of responsability.

The root causes of poverty in Central America relate to provision of weak state basic services (low quality of education, low health coverage, ineffective justice, etc), and as long as these rights are not adequately exercised (due to lack of resources aggravated by corruption) the circle of poverty will continue to deepen and deteriorate citizen´s wellbeing, the seeds for added violence and the door for a potential civil conflict. It is about time entrepreneurs pay attention.